Suppose That Verizon Wireless Has Hired You as a Consultant

question 42

Multiple Choice

Suppose that Verizon Wireless has hired you as a consultant to determine what price it should set for calling services.Suppose that an individual's inverse demand for wireless services in the greater Boston area is estimated to be P = 100 − 33Q and the marginal cost of providing wireless services to the area is $1 per minute.What is the optimal two-part price that you would suggest to Verizon?

• A) Charge a fixed fee = $95.5 and a usage fee of $1 per minute.
• B) Charge a fixed fee = $3 and a usage fee of $0.33 per minute.
• C) Charge a fixed fee = $148.50 and a usage fee of $1 per minute.
• D) Charge a fixed fee = $3 and a usage fee of $3 per minute.

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Definitions:

Forward Contract

A bespoke contract between two parties for the future exchange of an asset, set at a price determined today, to occur at a specific later date.

Spot Market Price

The current market price at which a particular asset, such as a commodity, currency, or security, can be bought or sold for immediate delivery.

Contract Price

The agreed-upon price for goods or services detailed in a contractual agreement.

Swap Contract

A financial agreement between two parties to exchange sequences of cash flows for a set period of time according to a specified formula.